403(b) Plans A Major Selling Point To Replenish Nonprofit Ranks

The 403(b) retirement plan will play a leading role in attracting the next generation of talent to run nonprofit institutions, colleges and universities, all of which will see their employee ranks depleted due to a wave of retirements, according to a new survey.

A total of 69 percent of 403(b) plan sponsors plan to replace the majority of retirees and 38 percent say they expect recruiting challenges, the survey by the Plan Sponsor Council of America and the Principal Financial Group found. They see the 403(b) as a potential boon to recruiting.

The employee turnover will create new opportunities for investment companies that offer the 403(b) to plan sponsors, and will offer a chance for advisors to counsel plan sponsors and employees contributing to 403(b) accounts.

“We’ve seen 403(b) plans improve dramatically over recent years,” Bob Benish, executive director of the PSCA, said in a statement. “It is clear those plans will be increasingly important in the race for high performers, especially in higher educational institutions.”

Nonprofit organizations rely more heavily on attractive benefits like retirement plans, medical coverage and subsidized insurance coverage to lure top talent compared with the private sector which can attract managers and skilled labor through higher salaries.

More than half of all 403(b) plan sponsor respondents expect between 10 and 20 percent of their workforce to retire in the next five years, and 20 percent of 403(b) plan sponsors with 500 or more employees expect to lose as much as 20 percent of their workforce, the survey also found.

Waves of retiring employees have an impact on such areas as an institution’s training needs, skills gaps, reallocation of staff responsibilities, implementation of flexible hours to retain key people and increased use of technology, the survey found.

“As a generation of academics nears retirement, financial professionals have another reason to focus on higher education as an opportunity to grow their business,” said Aaron Friedman, national tax-exempt practice leader for Principal Financial.

A total of 45 percent of 403(b) organizations provide retirement planning education using independent financial advisors, and 68 percent provide retirement planning education through a service provider representative, the survey also found.

A wave of hiring in academia in the 1970s and 1980s led to the expansion of 403(b) plans among colleges and universities, and by 2016, total assets held in 403(b) plans will exceed $1 trillion, Cerulli Associates estimates.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].